FTC chair tells KFA to share cost of wage hike

Fair Trade Commission Chair Kim Sang-jo told local franchise CEOs on Friday that he believes the burden of the minimum wage hike should be shared between franchisees and the company headquarters.

“For some, wage is income whereas for others, it’s a cost,” he said during a lecture attended by members of the Korea Franchise Association (KFA) at the Sheraton Seoul Palace Gangnam Hotel, southern Seoul. The main theme was the policy direction for the local franchise industry.

“I believe the raised minimum wage will eventually contribute to the local economy by expanding the income of the most financially limited people in the country,” said Kim. “But I’m aware it won’t be easy for small business operators to immediately cope with the sudden cost increase.”

The FTC plans to encourage headquarters to use a contract form with their franchisees in the future.

This revised version includes a clause that says a branch owner can request a renegotiation with headquarters to lower loyalty fees if costs for operation excessively increase - a case likely to happen now with the minimum wage raised by 16.4 percent.

KFA Chairman Park Ki-young expressed concerns about the remarks during a Q&A session.

Park argued that a lot of franchise headquarters are small businesses with 65 percent of them raising sales of less than one billion won ($940,000) a year. Kim responded that the measure to share the burden was not forced, but a suggestion that will incentivize companies that use the form.

Throughout his speech, Kim emphasized the importance of mutual cooperation between franchise headquarters and branch owners multiple times, calling it a core value underlying the franchise business that takes both parties to work to build up a brand.

A handful of regulations on franchises will be enforced this year, including expanding the list of products headquarters oblige franchisees to purchase from them and a stronger penalty for retaliation against branch owners that do not renew contracts. Both were examples of misconduct from some franchise headquarters last year that caused a public outcry.

However, Kim made it clear that he was willing to listen to the industry’s opinion regarding reforms, mentioning examples of the FTC having made changes to the original draft of franchise regulations after meeting with industry insiders.

For example, the obligation to open the list of products headquarters requested franchisees purchase will not be applied to convenience stores, which would have thousands of items to report.

Nevertheless, the comments received from the floor after Kim’s lecture signaled dissatisfaction from the franchise CEOs regarding the FTC’s regulations.

“Solving polarization in society is a good cause but I believe the greater a cause is, the more sophisticated measure [the government] needs to come up with in order to tackle it,” said one industry source from the floor. “I wish the approach could be seen from a broader perspective to make policies work.”

KFA Chair Park also called for policies that better understand the difficult situation franchise companies face today. According to Park, 956 franchise headquarters closed last year, which accounts for 16.2 percent of association’s members.